The Myths Of Disruption: How Should You Really Respond To Emerging Technologies?

Disruption may be the most overused term in the business lexicon today. Every startup wants to disrupt the established order. Every incumbent is scared of being disrupted. Disruption is a rallying cry or a bogeyman, depending on where you sit. And no one is immune: if an executive dares to suggest that their industry is free from the threat of disruption, they are accused of being short-sighted or in denial, and heading the way of the Titanic or the T-Rex.

I find this obsession with disruption a little disturbing. I can think of plenty of industries where the big established players are pretty stable, despite all the potential disruptions they have been through. Retail banking for example — pick a country, look at their big four or five retail banks today versus twenty years ago, and tell me how different these two lists are. Retail banking has experienced many technological shifts, from ATMs to telephone, online and now mobile banking, each one accompanied by warnings of a shake-up, and yet the old order has held firm.

My point is not to deny that full-on disruption happens occasionally; of course it does. We all know the sad cases of Blockbuster, Kodak, and Nokia. But the truth is, new technologies emerge in a wide variety of ways and often the range of valid responses from established firms is equally wide. By focusing attention on the extreme, disruptive end of the spectrum, we risk losing sight of the bigger picture. I just don’t think it’s healthy — or intellectually honest — to proclaim, Chicken Little-like, that the sky is falling.

So in the spirit of broadening the debate on how to respond to technological change, I would like to challenge some of the convention thinking that often gets bandied about. To be provocative, I will call these the “myths of disruption” but they aren’t entirely untrue. They are closer to what Jeff Pfeffer and Bob Sutton call “dangerous half-truths” that are valid under a narrow set of conditions, but often wrong — and therefore misleading. By challenging these myths, and suggesting an alternative logic in each case, I hope you will become more thoughtful about how to respond to emerging and potentially-disruptive technologies in your industry.

Myth 1: Every industry faces being disrupted

While startups sometimes kill off established firms completely (Netflix — Blockbuster for example), the more common scenario is for the new and the old to coexist, often in different segments of the market. There are still some book publishers and book retailers around, despite predictions of their demise fifteen years ago. It seems clear that Airbnb is sharing the ‘hotel’ market with traditional groups like Hilton and IHG, and that Uber is learning to coexist with Black or Yellow cabs. Established banks, as noted earlier, have maintained their strong customer franchises despite the digital upheaval they are going through.

Why do we usually see coexistence, not full-on disruption? Many new technologies don’t stay on the steep performance-improvement trajectory they start with, and many traditional sources of advantage, such as customer relationships and channels to market, are resilient to changes in technology. And of course, the market isn’t homogeneous — different segments of customer value different things. It is pretty rare to face a Kodak-style disruption where all the traditional sources of advantage become obsolete.

Of course, it does no harm to think through the worst-case scenario of full-on disruption, but my advice is to plan for the more likely scenario, which typically involves some combination of the new and the old. An example from my sector: business education in the future will almost certainly involve a blend of Socratic classroom-based discussion, group-based project work, and individual online learning. While traditional business schools cannot afford to ignore on-line learning entirely, it is equally true that the ones who bet early and big on Massive Online courses have not recouped that investment. Over-reacting can be as costly as under-reacting.

Myth 2: Established firms get in trouble because they don’t see the new technology coming

When I discuss the failure of Nokia’s handset business with my students, their gut response is “they missed the shift in the market.” But the fact is that Nokia had a touchscreen phone in prototype before the 2007 introduction of the iPhone, as well as an App Store called Ovi. The company’s problem wasn’t a lack of foresight or insight: it was a failure of implementation.

In my experience, the captains of industry typically see the iceberg coming well in advance. But they respond by forming iceberg committees, and building iceberg-monitoring equipment, rather than by steering away.

The initial step — often called sensing or scouting — is actually pretty easy to do. Every large firm I know has a unit called “foresight” or “business intelligence” or “scenario planning” whose raison d’etre is to monitor potentially-disruptive trends. But they are often so detached from the decision-making hub of the firm that they don’t get their message across. I recently did a study of how the big pharma companies like Merck and Roche responded when biotechnology took off in the early 1990s. They all dabbled in strategic alliances or partnerships with biotechs, but only half of them followed up with major commitments to the new technology; for the others, these were token efforts that failed to grab the attention of top executives.

It is often argued that those closest to the action, or those on the fringes, are best placed to pick up the weak signals of change. I have a lot of sympathy for this argument, and indeed I tend to agree that executives who empower and listen to their front-line employees will be better placed to make smart decisions. But the problem is, adapting to potentially-disruptive technologies requires you to act on ambiguous data, and the more consensus-oriented your decision making process, the slower and more inconclusive it is likely to be. Discussing an issue in depth makes people feel better about it, but it can also result in analysis paralysis.

It is an uncomfortable truth that the companies that are best at seizing potentially-disruptive opportunities are tightly controlled at the top: Oracle, Amazon, Facebook, News International, to name a few. These companies are run by strong-minded, powerful individuals, who are able to cut through the arguments and make decisive judgments while their consensus-oriented counterparts seek to balance opposing views and not upset anyone too much. I love the term for such individuals coined by former Apple executive, Pascal Cagni: he calls them benevolent, transparent dictators. This is the style of leadership, he argues, that works best in a fast-changing business world.

Myth 4: You need to harness the power of big data and business analytics to make smart decisions

In most industries today, there is an abundance of information on customer behaviour, market trends, and competitor actions, and there are increasingly sophisticated tools available for making sense of this data. So when faced with a potentially-disruptive threat, our first inclination is always to analyse the situation using whatever data we can lay our hands on.

But again, there are limits to this approach. We can get stuck in analysis paralysis. We can have too much faith in the data, some of which may be of dubious quality (we live in the fake news era, after all). We can lose sight of the context of what we are studying. And of course, we run the risk that our competitors have access to the same body of data, and the same analytical tools, which makes it very hard to differentiate our offering from theirs.

Where does competitive advantage come from when information is ubiquitous and shared? It comes from decisiveness (as noted above) and it comes from being able to harness the tacit experience and knowledge that cannot be reduced to numbers and NPV calculations. In short, it comes from emotional conviction.

The Facebooks and Amazons of the world don’t succeed because they have smart data scientists — because lots of companies have them. Rather, I would argue, they succeed because they are prepared to move beyond the data and to trust their intuition in cases where no amount of market research would tell you the right way forward. Yes, a balance is needed here. I don’t suggest for a second that we should be throwing out the hard data and going on gut feel. But I worry that we are too easily seduced by the latest analytical tools, and too locked into a template that requires us to quantify everything. The human brain has two sides — an analytical one and an emotional one — for sound reasons, and we need to make sure we bring both sides to the table when making tricky decisions.

Myth 5: You need to act fast, or you will be wiped out

Finally, the argument that your industry faces imminent disruption is typically accompanied by a warning that you must act quickly. As my colleague Gary Hamel says, some startup is carving a bullet with your name on, and the only way to avoid it is to shoot first.

But is speed really that important? I recently conducted a study of how big pharma companies were responding to the threat of biotechnology, and even though biotech was seen as a potentially-disruptive threat in the early 1990s, it wasn’t until the 2010s that biologic drugs started to appear at the top of the blockbuster sales charts. It took twenty years for this transformation to occur. The newspaper industry is another case-in-point: we agonise today over whether and how our traditional newspapers might survive, but they have been working on the problem since 1995. Banking, as I mentioned earlier, has been getting to grips with digitisation for twenty years, and the story is still unfolding. Kodak was declared bankrupt in 2008, but it invented the digital camera back in the late 1970s.

So again, understanding how new technologies play out over a variety of sectors is healthy because it reminds you that speediness isn’t everything. Even in cases where a commitment to decisive change is necessary, there is often a long capability-building stage that comes before.

It is sometimes said that those who fail to learn the lessons of history are destined to repeat them. But the trouble is, there are many different lessons you can learn from here, and if you use Kodak or Nokia’s failure as the model, you run the risk of over-reacting and taking the wrong actions.

My purpose here is simply to provoke: to challenge the apocalyptic argument that every industry is on the cusp of disruption, and to show that the appropriate response varies with the particular circumstances facing your industry, with full-on disruption as a very unlikely scenario. There is no recipe book here — but greater understanding and a bit more critical thinking are invaluable assets as you seek to get to grips with the changes unfolding in your industry.

Julian Birkinshaw is a Professor of Strategy and Entrepreneurship at London Business School and Academic Director of the Deloitte Institute of Innovation and Entrepreneurship.